Good for the money

Abstract

Previous research indicates that a lack of state capacity is a key determinant of internal armed conflict. Scholars identify several internal dimensions of state capacity, but have yet to explore how international finance influences state resources. This is surprising because sovereign lending has increased dramatically in recent decades and plays an increasing role in the functioning of developed and developing governments. In this article, we explore this relationship between a state’s integration into global credit markets and its subsequent capacity to promote domestic stability. We argue that international capital increases a state’s ability to respond to internal opposition because states with favorable credit terms can expand their resource base beyond domestic constraints to deter, accommodate, or repress opposition while maintaining a level provision of resources to their political base. We examine the influence that both capital access and credit terms have on the risk of civil conflict in 141 countries from 1981 to 2007. Our empirical results indicate that states with affordable credit access are indeed less likely to experience civil conflict.